Maximizing Dividends without Bankruptcy

Consider the classical compound Poisson model of risk theory, in which dividends are paid to the shareholders according to a barrier strategy. Let b* be the level of the barrier that maximizes the expectation of the discounted dividends until ruin. This paper is inspired by Dickson and Waters (2004). They point out that the shareholders should be liable to cover the deficit at ruin. Thus, they consider b^o, the level of the barrier that maximizes the expectation of the difference between the discounted dividends until ruin and the discounted deficit at ruin. In this paper, b* and b^o are compared, when the claim amount distribution is exponential or a combination of exponentials.

KEYWORDS: Dividends, barrier strategies, Dickson and Waters modification, mixtures and combinations of exponential claim amount distributions.